2025 (7) TMI 128 - HC - Income Tax

Validity of final assessment order passed by the AO beyond the time limit prescribed u/s 144C(13) - Case of the appellant was referred to the Transfer Pricing Officer u/s 92CA - HELD THAT - AO shall complete the assessment without providing any further opportunity of being heard to the assessee within one month from the end of the month in which such direction is received. In the instant case the AO received the direction from the DRP passed under Sub-Section (5) of Section 144C of the IT Act on 29.12.2015 and the AO was required to pass assessment order within one month from the end of December 2015 i.e. the AO ought to have passed assessment order on or before 31.01.2016. AO passed assessment order only on 18.02.2016 beyond the prescribed time under Sub-Section (13) of Section 144C of the IT Act. Under Sub-Section (13) of Section 144C of the IT Act the Assessing Officer is mandated to pass order within the time prescribed thereunder and no discretion is vested with the AO. Under Sub-Section (13) of Section 144C of the IT Act the Assessing Officer on receipt of direction under Sub-Section (5) from DRP mandated to complete the assessment within one month from the end of the month in which such direction is received. Immediately on receipt of direction from the DRP under Sub-Section (5) the AO shall complete the assessment within the timeline. The timeline prescribed under Sub-Section 144C are to be construed as mandatory. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

(a) Whether the Tribunal was justified in law in upholding the validity of the final assessment order passed by the Assessing Officer beyond the time limit prescribed under Section 144C(13) of the Income-Tax Act, 1961 ("IT Act").

(b) Whether the Tribunal was justified in law in failing to follow the decisions of coordinate benches.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of Final Assessment Order Passed Beyond Time Limit under Section 144C(13) of the IT Act

Relevant Legal Framework and Precedents:

Section 144C(13) of the IT Act mandates that upon receipt of directions issued under subsection (5) by the Dispute Resolution Panel (DRP), the Assessing Officer shall complete the assessment in conformity with those directions within one month from the end of the month in which such directions were received, without providing any further opportunity of hearing to the assessee. The timeline prescribed is mandatory and leaves no discretion to the Assessing Officer.

Precedents relied upon by the appellant and considered by the Court include:

• The High Court of Delhi in Louis Dreyfus Company India (P) Ltd., which held that the time limit under Section 144C(13) is mandatory and the Assessing Officer must complete the assessment within the prescribed period without any discretion.
• The Division Bench of Telangana High Court in Rapiscan Systems Pvt. Limited, which set aside assessment orders passed beyond the permissible period under Section 144C(13).
• Decisions of the Bombay High Court in Vodafone Idea Ltd. and Shell India Markets (P) Ltd. affirming the mandatory nature of the timeline under Section 144C(13).

The Tribunal, however, relied on the Andhra Pradesh High Court decision in Rain Cements Limited, which held that an assessment order passed beyond the prescribed time under Section 144C cannot be declared null and void merely on that ground. The Court found this reliance misplaced due to differing factual circumstances.

Court's Interpretation and Reasoning:

The Court examined the timeline of events in the instant case: the DRP passed its order on 17.12.2015, which was communicated to the Assessing Officer on 29.12.2015. Therefore, under Section 144C(13), the final assessment order had to be passed within one month from the end of December 2015, i.e., by 31.01.2016. However, the final assessment order was passed on 18.02.2016, 18 days beyond the prescribed deadline.

The Court emphasized that Section 144C(13) mandates completion of assessment within the stipulated time without any discretion or extension. The Assessing Officer is required to comply strictly with the directions of the DRP within the timeline.

The Court distinguished the Rain Cements Limited decision on the ground that it arose in a different factual context where no direction under Section 144C(5) was issued within the prescribed time, whereas in the present case, directions were duly issued and communicated, triggering the mandatory timeline under Section 144C(13).

The Court endorsed the reasoning in the Delhi and Telangana High Court decisions, which held that delay beyond the prescribed period under Section 144C(13) renders the assessment order invalid and liable to be set aside.

Key Evidence and Findings:

The undisputed facts established that the DRP's directions were communicated on 29.12.2015, and the final assessment order was passed on 18.02.2016, beyond the one-month period ending 31.01.2016. No justification or statutory provision allowed the Assessing Officer to extend this deadline.

Application of Law to Facts:

The Court applied the mandatory provision of Section 144C(13) strictly to the facts and found the final assessment order was passed beyond the prescribed time limit, rendering it invalid.

Treatment of Competing Arguments:

The Revenue contended that the Tribunal was correct in relying on Rain Cements Limited and that the assessment order should not be declared null and void. The Court rejected this argument, holding that the factual distinction was material and that the mandatory timeline under Section 144C(13) must be enforced.

Issue (b): Failure to Follow Decisions of Coordinate Benches

Since the Court answered the first issue in favour of the appellant, it held that the second issue regarding the Tribunal's failure to follow coordinate bench decisions did not survive for consideration.

3. SIGNIFICANT HOLDINGS

"Under Sub-Section (13) of Section 144C of the IT Act, the Assessing Officer is mandated to pass order within the time prescribed thereunder and no discretion is vested with the Assessing Officer. The timeline prescribed under Sub-Section 144C are to be construed as mandatory."

"The Assessing Officer shall complete the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received."

"The reason of the Tribunal while passing the impugned order placing reliance on the RAIN CEMENTS LIMITED is misplaced, as the said decision though arises from Section 144C of the IT Act, it was under a different context or different fact situation; in the said case, no direction under Sub-Section (5) of Section 144C of the IT Act was passed within the time prescribed therein."

"The impugned final assessment order dated 18.02.2016 passed beyond the prescribed time limit under Section 144C(13) of the IT Act is invalid and liable to be set aside."

"Accordingly, the Substantial Question of Law No.1 is answered in favour of the appellant/assessee and against the respondent/revenue."